Dominican Republic - Overview of economy

Since the 1960s the Dominican Republic's economy has shifted significantly from reliance on sugar and other agricultural commodities to an emphasis on tourism, mining, and manufacturing. Initially the country had a sparse population and was the neglected outpost of the Spanish Empire. Then the territory's ranching economy was replaced by labor-intensive sugar plantations in the wake of the U.S. occupation (1916-24). Sugar remained the dominant economic factor for another half century until large losses incurred by the state-controlled sugar corporation and low international prices spurred a search for diversification.

Commodities, notably ferronickel, gold, and silver, remain important to the Dominican Republic, and sugar is still exported to the United States, but the main areas

of growth in the last few decades of the 20th century have been tourism and export-oriented manufacturing. The Dominican Republic is now one of the Caribbean's most popular tourist destinations, specializing in all-inclusive resorts. Tourist arrivals averaged more than 1.5 million annually during the 1990s. Annual spending by tourists averaged about US$2 billion. The tourism industry has encouraged a construction boom, with new hotels and other infrastructure accounting for a rapid increase in construction share of the GDP.

Successive governments have also attempted to build up the country's manufacturing sector by creating so-called "industrial free zones " to which foreign companies are attracted by low wages and a series of tax concessions. Some 500 corporations are based in 50 free zones, mostly involved in assembling clothing and electrical components for the U.S. market. However, the future of such zones has been under question since the creation of the North American Free Trade Area (NAFTA) in 1994, through which Mexico can compete effectively with the Dominican Republic and other developing countries on low-wage manufacturing and easy access to the U.S. market.

The Dominican Republic has had to come to terms with the economic legacy of the dictator Rafael Leónidas Trujillo, who ruled the country from 1930 to 1961. Trujillo controlled much of the Dominican economy, including sugar plantations and areas of manufacturing, and when he was assassinated, the state inherited these assets. Government attempts to divest itself of large parts of the national economy have been problematic, as many state-owned businesses are heavily indebted and unprofitable. Recently, however, governments have managed to privatize the electricity sector and even parts of the sugar industry. Foreign companies have invested in these areas as well as in tourism and manufacturing. The Dominican Republic had an estimated external debt of US$4.7 billion in 2000 and remained highly dependent on importing many basic goods. Tourism receipts helped to offset negative trade balances, but tourism remained highly vulnerable to competition, natural disasters, and recession in the developed world.

Although the Dominican Republic has undergone considerable modernization and free-market reform, poverty stubbornly remains, with an estimated 25 percent of Dominicans living under the poverty line. Many more are unable to afford anything other than basic items for survival. Rural poverty is particularly prevalent, causing many to move to cities or to attempt emigrating to the United States. The remittances sent home by Dominicans living overseas are estimated at around US$1.5 billion annually and provide vital income for many poor families.